Dow Chemical Company News

Dow Reports Second Quarter Results

MIDLAND, Mich., July 24 PRNewswire-FirstCall — Second Quarter 2008 Highlights

- Sales for the second quarter set another Company record, rising 23 percent from the same period last year to $16.4 billion. Double-digit price increases were recorded in all operating segments and all geographic areas.

- Volume grew 5 percent, with 12 percent growth in geographic areas outside of North America, including an 11 percent volume increase in Europe.

- Earnings for the quarter were $0.81 per share, compared with earnings per share of $1.07 in the same quarter last year.

- Purchased feedstock and energy costs surged 42 percent, or $2.4 billion, compared with the same quarter last year, the largest year-over-year increase in the Company's history.

- EBIT(1) in the combined Performance segments rose compared with the same period last year despite substantial increases in raw material and supply chain costs.

- Agricultural Sciences set a new quarterly record for both sales and EBIT. Sales rose 25 percent, and EBIT grew more than 60 percent versus the same period last year.

- Equity earnings were $251 million for the quarter, once again demonstrating consistent contributions from joint ventures to the Company's results.

Comment

Andrew N. Liveris, Dow's chairman and chief executive officer, stated:

"The surge in oil prices from first to second quarter added another $1 billion of cost sequentially, and we reacted quickly by announcing two broad- based price increase initiatives, adjusting plant operating rates and implementing additional cost-cutting measures. The fast implementation of these price increases limited margin compression over our hydrocarbon and energy costs to approximately $130 million in the quarter. This is a remarkable performance when you consider that this is only 1 to 2 percent of our total quarterly hydrocarbon and energy costs.

"These short-term actions, in addition to key elements of Dow's strategy, such as our large global footprint, our investments in Performance businesses and our asset light ventures, enabled us to weather unparalleled increases in hydrocarbons, supply chain and other costs."

3 Months 6 Months Ended Ended June 30 June 30 (In millions, except for 2008 2007 2008 2007 per share amounts) Net Sales $16,380 $13,265 $31,204 $25,697 Net Income $762 $1,039 $1,703 $2,012 Earnings per Common Share $0.81 $1.07 $1.80 $2.07

Review of Second Quarter Results

The Dow Chemical Company (NYSE: DOW) reported sales of $16.4 billion for the second quarter of 2008, 23 percent higher than the same period last year, setting another quarterly sales record.

Net income for the quarter was $762 million. This compares with net income of $1,039 million in the second quarter of 2007. Dow reported earnings for the current quarter of $0.81 per share versus earnings of $1.07 per share in the second quarter of 2007.

Price was 18 percent higher than the same quarter last year, with double-digit increases in all operating segments and all geographic areas. These price gains offset significant increases in purchased feedstock and energy costs, which were $2.4 billion higher than the same period last year. However, these price increases were not enough to cover higher total raw material and supply chain costs.

Year over year, volume was up 5 percent, matching the highest quarterly increase since 2004. In the combined Performance segments, volume increased 7 percent. Growth in emerging geographies of 12 percent, and 11 percent growth in Europe, more than offset economic weakness in North America. Volume in North America was also impacted by various asset shutdowns, business exits and the formation of Americas Styrenics, a new joint venture between Dow and Chevron Phillips Chemical Company.

Equity earnings were $251 million for the quarter, once again demonstrating strong and consistent contributions from joint ventures to the Company's results.

"The surge in oil prices from first to second quarter added another $1 billion of cost sequentially, and we reacted quickly by announcing two broad-based price increase initiatives, adjusting plant operating rates and implementing additional cost-cutting measures," said Andrew N. Liveris, chairman and chief executive officer. "The fast implementation of these price increases limited margin compression to approximately $130 million in the quarter. This is a remarkable performance when you consider that this is only 1 to 2 percent of our total quarterly hydrocarbon and energy costs.

Performance Plastics

In the Performance Plastics segment, second quarter sales of $4.4 billion represented an 18 percent increase over the same period last year. Price increased 11 percent, with gains in all geographic areas. Volume rose 7 percent, with particular strength in Europe and Asia Pacific. Despite robust price gains across the segment, selling prices continued to lag significant increases in raw material and supply chain costs. Recent acquisitions contributed to double-digit volume growth in Polyurethane Systems, as demand increased in applications such as insulation for oil and gas pipelines and refrigerated transport. Dow Wire and Cable reported strong demand in medium voltage cabling, as the pace of electrical infrastructure replacement in major cities increased and demand from emerging geographies grew due to construction of new electrical grids. Dow Epoxy Systems sales continued to ramp up, however, margins declined for epoxy intermediates in the face of rising raw material costs and additional industry capacity. The North American automotive and housing industries continued to decline, and negatively impacted results in a number of business units such as Dow Automotive, Dow Building Solutions, and Specialty Plastics and Elastomers. Second quarter EBIT for Performance Plastics was $268 million, compared with $382 million in the second quarter of 2007.

Performance Chemicals

Sales in Performance Chemicals were $2.5 billion for the quarter, a gain of 20 percent compared with $2.1 billion posted in the same period last year. Globally, price was up 14 percent while volume increased 6 percent. Price increased in all geographic areas, and strong volume gains were reported in Europe, Latin America and the India, Middle East, and Africa region. Designed Polymers posted price and volume gains in all geographic areas, due in part to growth in pharmaceutical and oil and gas applications in Dow Wolff Cellulosics and strong demand for poultry food additives in its Specialty Polymers unit. Dow Water Solutions reported growing demand for FILMTEC(TM) reverse osmosis membranes, as more world scale desalination projects utilizing Dow technology were announced. The significant contraction in the U.S. housing industry dampened results for Dow Latex in paint applications. Equity earnings in the segment were $119 million, up $15 million on better results from Dow Corning and OPTIMAL. Performance Chemicals reported EBIT of $290 million for the quarter, compared with $294 million for the same period last year.

Agricultural Sciences

The Agricultural Sciences segment posted record sales of $1.4 billion, 25 percent higher than the same period last year. All geographic areas posted double-digit increases in sales, reflecting organic growth and growth from recent acquisitions. Dow AgroSciences' broad portfolio of both agricultural chemicals and seeds benefited from rising prices and low global inventories of farm commodities. Price was up 12 percent, with strong increases in all geographic areas. Volume was up 13 percent compared with the same period last year, with double-digit increases in North America, Europe, Latin America and Asia Pacific. Ag chemicals showed particular strength. Sales were up sharply for new cereal and rice herbicides, and for spinetoram insecticide, which continued its successful launch in the United States. Seeds and traits continued to benefit from a strong ag economy with global demand for agricultural output at record levels. The recent acquisitions of Agromen, MTI and Duo Maize continue to perform well, and the integration of newly acquired Triumph Seeds is progressing. Second quarter EBIT for Agricultural Sciences was $335 million, compared with $208 million in the year ago period.

Basic Plastics

In the Basic Plastics segment, sales rose 19 percent to $3.8 billion, up from $3.2 billion in the same period last year. Price increased 22 percent, and was up in all businesses and in all geographic areas. Volume decreased 3 percent, due in part to the shutdown of polypropylene capacity in St. Charles, Louisiana in the fourth quarter of 2007, the sale of polyethylene assets in Cubatao, Brazil in the second quarter of 2007, and the formation of Americas Styrenics, a new polystyrene joint venture between Dow and Chevron Phillips Chemical Company. Polyethylene showed particular strength, with volume gains in all geographic areas. Margin compression occurred, however, as costs rose faster than selling prices. Demand for polypropylene was down globally, due to lower consumer spending and slowdowns in the housing and automotive sectors in North America. Equity earnings were $33 million, down $15 million as higher earnings at EQUATE were more than offset by decreases at Equipolymers and Siam Polyethylene. EBIT for Basic Plastics was $388 million compared with $529 million in the same period last year.

Basic Chemicals

Basic Chemicals sales for the quarter increased 13 percent year over year to $1.6 billion, compared with $1.5 billion in the same period last year. The segment recorded a 20 percent gain in price, and a 7 percent decline in volume. Volumes were negatively impacted by the sale of the caustic soda business in Western Canada in December 2007. Caustic soda benefited from ongoing favorable industry supply/demand fundamentals, but demand for vinyl chloride monomer used in polyvinylchloride ("PVC") production continued to decline as end-use applications for PVC, namely residential building and construction applications, remained soft. Results for the Chlor-Vinyls business were also impacted by an unplanned outage at the Company's Freeport, Texas facility. Volumes were off substantially in the Ethylene Oxide/Ethylene Glycol ("EO/EG") business, due to weak industry fundamentals caused by the restart of a competitor's production capacity, new capacity from Middle Eastern suppliers, and a decline in polyester fiber demand in Asia Pacific. Results for EO/EG were also impacted by an extended plant turnaround in Plaquemine, Louisiana, and by reduced operations at other facilities to bring inventory levels in line with lower industry demand. Equity earnings in Basic Chemicals were $71 million, versus $80 million in the year ago period due to lower results at MEGlobal. EBIT was $29 million, compared with $165 million in the second quarter of 2007.

Outlook

Commenting on the Company's outlook, Liveris said: "The surge in oil prices, which has further weakened the U.S. economy, has created new uncertainties in demand around the world. We believe the U.S. economy will continue to weaken for the rest of 2008, and that the outlook for the global economy will remain uncertain. Despite this, our results have demonstrated that our strategy for diversification on a global and end-use market basis has allowed us to manage through these challenging times.

"In addition, we remain committed to furthering our transformation, and to changing the earnings profile of our company. Two recent announcements speak well to this commitment. First, the announcement of our acquisition of Rohm and Haas, which will create the leading specialty chemicals and advanced materials company in the world. And second, the selection of the CEO and headquarters location for K-Dow Petrochemicals, our new joint venture with Petrochemical Industries Company of Kuwait, which we expect to close by the end of this year. These actions show our determination, and the progress we are making toward transforming Dow into an earnings growth company."

Dow will host a live Webcast of its second quarter earnings conference call with investors to discuss its results, business outlook and other matters today at 10:00 a.m. ET on www.dow.com

(1) Earnings before interest, income taxes and minority interests (\"EBIT\"). A reconciliation of EBIT to \"Net Income Available for Common Stockholders\" is provided following the Operating Segments table. (R)(TM) Trademark of The Dow Chemical Company or an affiliated company of Dow.

About Dow

With annual sales of $54 billion and 46,000 employees worldwide, Dow is a diversified chemical company that combines the power of science and technology with the "Human Element" to constantly improve what is essential to human progress. The Company delivers a broad range of products and services to customers in around 160 countries, connecting chemistry and innovation with the principles of sustainability to help provide everything from fresh water, food and pharmaceuticals to paints, packaging and personal care products. References to "Dow" or the "Company" mean The Dow Chemical Company and its consolidated subsidiaries unless otherwise expressly noted. More information about Dow can be found at www.dow.com

Note: The forward-looking statements contained in this document involve risks and uncertainties that may affect the Company's operations, markets, products, services, prices and other factors as discussed in filings with the Securities and Exchange Commission. These risks and uncertainties include, but are not limited to, economic, competitive, legal, governmental and technological factors. Accordingly, there is no assurance that the Company's expectations will be realized. The Company assumes no obligation to provide revisions to any forward-looking statements should circumstances change, except as otherwise required by securities and other applicable laws.

Financial Statements (Note A) The Dow Chemical Company and Subsidiaries Consolidated Statements of Income Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, In millions, except per share amounts (Unaudited) 2008 2007 2008 2007 Net Sales $16,380 $13,265 $31,204 $25,697 Cost of sales 14,643 11,398 27,551 22,003 Research and development expenses 335 320 666 622 Selling, general and administrative expenses 515 477 1,013 895 Amortization of intangibles 25 18 47 29 Restructuring credit - 4 - 4 Equity in earnings of nonconsolidated affiliates 251 258 525 532 Sundry income - net 37 123 83 192 Interest income 25 33 49 73 Interest expense and amortization of debt discount 151 129 296 275 Income before Income Taxes and Minority Interests 1,024 1,341 2,288 2,674 Provision for income taxes 243 277 542 612 Minority interests' share in income 19 25 43 50 Net Income Available for Common Stockholders $762 $1,039 $1,703 $2,012 Share Data Earnings per common share - basic $0.82 $1.09 $1.82 $2.10 Earnings per common share - diluted $0.81 $1.07 $1.80 $2.07 Common stock dividends declared per share of common stock $0.42 $0.42 $0.84 $0.795 Weighted-average common shares outstanding - basic 929.8 954.8 936.0 959.0 Weighted-average common shares outstanding - diluted 939.4 968.0 945.5 971.7 Depreciation $497 $474 $992 $940 Capital Expenditures $597 $462 $956 $792 Notes to the Consolidated Financial Statements: Note A: The unaudited interim consolidated financial statements reflect all adjustments which, in the opinion of management, are considered necessary for a fair presentation of the results for the periods covered. These statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2007. Except as otherwise indicated by the context, the terms \"Company\" and \"Dow\" as used herein mean The Dow Chemical Company and its consolidated subsidiaries. The Dow Chemical Company and Subsidiaries Consolidated Balance Sheets June 30, Dec. 31, In millions (Unaudited) 2008 2007 Assets Current Assets Cash and cash equivalents $2,111 $1,736 Marketable securities and interest-bearing deposits 2 1 Accounts and notes receivable: Trade (net of allowance for doubtful receivables - 2008: $128; 2007: $118) 7,133 5,944 Other 4,223 3,740 Inventories 7,690 6,885 Deferred income tax assets - current 172 348 Total current assets 21,331 18,654 Investments Investment in nonconsolidated affiliates 3,242 3,089 Other investments 2,393 2,489 Noncurrent receivables 373 385 Total investments 6,008 5,963 Property Property 49,273 47,708 Less accumulated depreciation 34,649 33,320 Net property 14,624 14,388 Other Assets Goodwill 3,617 3,572 Other intangible assets (net of accumulated amortization - 2008: $776; 2007: $721) 794 781 Deferred income tax assets - noncurrent 2,283 2,126 Asbestos-related insurance receivables - noncurrent 681 696 Deferred charges and other assets 2,815 2,621 Total other assets 10,190 9,796 Total Assets $52,153 $48,801 Liabilities and Stockholders' Equity Current Liabilities Notes payable $2,225 $1,548 Long-term debt due within one year 1,051 586 Accounts payable: Trade 5,493 4,555 Other 2,344 1,981 Income taxes payable 494 728 Deferred income tax liabilities - current 132 117 Dividends payable 411 418 Accrued and other current liabilities 2,237 2,512 Total current liabilities 14,387 12,445 Long-Term Debt 8,116 7,581 Other Noncurrent Liabilities Deferred income tax liabilities - noncurrent 899 854 Pension and other postretirement benefits - noncurrent 3,109 3,014 Asbestos-related liabilities - noncurrent 925 1,001 Other noncurrent obligations 3,347 3,103 Total other noncurrent liabilities 8,280 7,972 Minority Interest in Subsidiaries 237 414 Preferred Securities of Subsidiaries 1,000 1,000 Stockholders' Equity Common stock 2,453 2,453 Additional paid-in capital 804 902 Retained earnings 18,919 18,004 Accumulated other comprehensive income (loss) 374 (170) Treasury stock at cost (2,417) (1,800) Net stockholders' equity 20,133 19,389 Total Liabilities and Stockholders' Equity $52,153 $48,801 See Notes to the Consolidated Financial Statements. The Dow Chemical Company and Subsidiaries Operating Segments Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, In millions (Unaudited) 2008 2007 2008 2007 Sales by operating segment Performance Plastics $4,418 $3,742 $8,381 $7,271 Performance Chemicals 2,476 2,071 4,799 4,073 Agricultural Sciences 1,360 1,091 2,674 2,127 Basic Plastics 3,780 3,180 7,272 6,074 Basic Chemicals 1,642 1,455 3,201 2,726 Hydrocarbons and Energy 2,618 1,623 4,783 3,235 Unallocated and Other 86 103 94 191 Total $16,380 $13,265 $31,204 $25,697 EBIT (1) by operating segment Performance Plastics $268 $382 $597 $823 Performance Chemicals 290 294 561 606 Agricultural Sciences 335 208 666 490 Basic Plastics 388 529 815 1,056 Basic Chemicals 29 165 188 299 Hydrocarbons and Energy - (1) - (1) Unallocated and Other (160) (140) (292) (397) Total $1,150 $1,437 $2,535 $2,876 Equity in earnings (losses) of nonconsolidated affiliates by operating segment (included in EBIT) Performance Plastics $12 $14 $30 $40 Performance Chemicals 119 104 214 209 Agricultural Sciences 1 - 2 - Basic Plastics 33 48 75 102 Basic Chemicals 71 80 168 155 Hydrocarbons and Energy 16 12 38 27 Unallocated and Other (1) - (2) (1) Total $251 $258 $525 $532 (1) The Company uses EBIT (which Dow defines as earnings before interest, income taxes and minority interests) as its measure of profit/loss for segment reporting purposes. EBIT includes all operating items related to the businesses and excludes items that principally apply to the Company as a whole. A reconciliation of EBIT to \"Net Income Available for Common Stockholders\" is provided below: Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2008 2007 2008 2007 EBIT $1,150 $1,437 $2,535 $2,876 + Interest income 25 33 49 73 - Interest expense and amortization of debt discount 151 129 296 275 - Provision for income taxes 243 277 542 612 - Minority interests' share in income 19 25 43 50 Net Income Available for Common Stockholders $762 $1,039 $1,703 $2,012 Sales Volume and Price by Operating Segment Three Months Ended Six Months Ended June 30, 2008 June 30, 2008 Percentage change from prior year Volume Price Total Volume Price Total Operating segments Performance Plastics 7% 11% 18% 5% 10% 15% Performance Chemicals 6% 14% 20% 6% 12% 18% Agricultural Sciences 13% 12% 25% 13% 13% 26% Basic Plastics (3)% 22% 19% (3)% 23% 20% Basic Chemicals (7)% 20% 13% (6)% 23% 17% Hydrocarbons and Energy 19% 42% 61% 10% 38% 48% Total 5% 18% 23% 3% 18% 21% The Dow Chemical Company and Subsidiaries Sales by Geographic Area Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, In millions (Unaudited) 2008 2007 2008 2007 Sales by geographic area North America $5,968 $5,418 $11,254 $10,039 Europe 6,347 4,674 12,205 9,475 Asia Pacific 1,913 1,543 3,622 2,947 Latin America 1,665 1,334 3,234 2,622 India, Middle East and Africa 487 296 889 614 Total $16,380 $13,265 $31,204 $25,697 Sales Volume and Price by Geographic Area Three Months Ended Six Months Ended June 30, 2008 June 30, 2008 Percentage change from prior year Volume Price Total Volume Price Total Geographic areas North America (6)% 16% 10% (4)% 16% 12% Europe 11% 25% 36% 5% 24% 29% Asia Pacific 12% 12% 24% 11% 12% 23% Latin America 5% 20% 25% 4% 19% 23% India, Middle East and Africa 47% 18% 65% 29% 16% 45% Total 5% 18% 23% 3% 18% 21%

SOURCE The Dow Chemical Company

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